With small-bank and thrift stocks languishing, market observers expect impatient investors to begin seizing the reins at underperforming institutions, in some cases pushing for outright sales of the companies.

Redwood Empire Bancorp of Santa Rosa, Calif., is a case where such change is under way. Under pressure from its largest investor, B. John Barry, the $437 million-asset company expanded its board Dec. 30, naming as directors two of the prominent Minnesota bank investor's hand-picked nominees.

Sources familiar with the situation say the shift at Redwood Empire suggests Mr. Barry is close to pushing the company into a deal after watching in frustration last year when Redwood turned down what sources said were several buyout bids.

Redwood Empire chief financial officer James E. Beckwith said the company has a policy against commenting on corporate developments such as potential bids, but he asserted that Redwood should produce "solid returns" this year.

Even so, analysts welcomed the board additions and predicted more change for the company.

"This should … shake things up," said Campbell Chaney, an analyst at Sutro & Co. in San Francisco. "Redwood is a chronic underperformer that has not earned its independence."

Redwood Empire is far from alone in feeling pressure from investors. Concerned about weaker earnings, rising interest rates, asset quality, and the overall economy, more and more investment groups are turning up the heat on underperforming banks and thrifts. And with bank and thrift stocks recently plunging to new 52-week lows, investment bankers, hedge fund managers, and bank analysts expect investors to become even more vocal in demanding board seats and urging for outright sales of small institutions.

"Many banks I talk to do not have a well-thought-out exit strategy for their shareholders, and I don't think their boards understand the concept of liability," said Thomas F. Gillen, principal at RCG Kingston Fund LLC in New York. "These guys can't sit around and think that if they keep the parking lot clean, the bank's value will rise."

Much of the pressure is coming from well-known activists such as Lawrence Seidman, Seymour Holtzman, Jerry Shearer, and twin brothers Matthew and Bennett Lindenbaum. But in recent months a new crop - including RCG Kingston, PL Capital in Chatnam, N.J., and Strome Investment Management in Santa Monica, Calif. - has begun to surface.

Mr. Seidman, a New Jersey-based investor who owns stakes in dozens of institutions, said thrifts are especially vulnerable to activists because they can no longer generate solid returns by simply peddling one- to four-family mortgages. He also said thrifts must engage in commercial lending if they hope to boost profits but lamented that many lack the expertise to do so.

These are difficult times for thrifts. The Office of Thrift Supervision last month reported that industry profits fell to $2.09 billion in the third quarter, down 6.3% from the year-earlier period. The American Banker index of the top 25 thrifts fell 23.16% last year.

"If investors want to make money, there better be unrest," Mr. Seidman said. "Without a catalyst, these stocks are going no place."

Observers said relations could get particularly testy between PL Capital and Haven Bancorp, a $2.9 billion-asset thrift in Westbury, N.Y., that is struggling to turn profits at its 60 supermarket branches. The investment fund is disappointed with the thrift's financial performance and has pressed it to find a buyer.

PL Capital is expected to launch a proxy fight soon to gain two seats on Haven's board. The thrift's management team balked at the investment group's request to fill a pair of vacant seats last summer, and a face-to-face Sept. 28 meeting between the parties did not help to smooth matters over.

According to Securities and Exchange Commission documents, Haven chairman and chief executive officer Philip S. Messina and other senior executives "declined to answer any questions or engage in any substantive discussion" about PL Capital's concerns or Haven's prospects.

Industry professionals said institutional shareholders are not the only ones becoming upset. So are individual investors - who often make up a bank or thrift's local shareholder base and are typically viewed as allies of management.

Robert J. Rogowski, principal at Columbia Financial Advisors Inc., a Seattle-based investment bank, said retail investors regard their bank stocks as unpromising. Local investors may band together and sell their shares to out-of-state investment groups that do not mind pressing management for answers, he said.

"All they want to do is get their money out and put it into tech stocks," Mr. Rogowski said.

But if hostile investors succeed in pushing for an institution's sale, who will buy it? Many would-be buyers have bruised stock prices or have recently disappointed Wall Street with poor earnings. In addition, active buyers of community banks and thrifts - Western Bancorp in Newport Beach, Calif., Premier Financial of Atlanta, Mercantile Bancorp in St. Louis, and Triangle Bancorp of Raleigh, N.C. - were themselves sold last year.

Observers said the few remaining buyers have become highly selective and are for the most part seeking deals in thriving markets.

Marc Davis, vice president of Banc Stock Group in Columbus, Ohio, suggested that bids for companies under shareholder pressure may be scarce.

"Some of these companies are like the old maid," he said. "No one wants to marry them, or even fool around."

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